Photo: ADEK BERRY/AFP/Getty Images
Last week, the International Monetary Fund (IMF) released an updated 2024 World Economic Outlook report, leaving several of its key projections from April unchanged. The agency continues to project the global economy to grow at a solid pace of 3.2% in 2024 and global inflation to slow from 6.7% last year to 5.9% this year. However, the IMF did decrease its forecast for U.S. GDP growth from 2.7% to 2.6%, noting signs of weakening consumer spending and a softening job market.
Nonetheless, U.S. economic growth accelerated in the second quarter of the year. U.S. GDP in Q2 2024 grew 2.8% year over year, a major increase from the 1.4% annual growth registered in the first quarter. U.S. inflation also dropped slightly, as the personal consumption expenditures (PCE) inflation gauge registered an annual price increase of 2.5% in June, from 2.6% in May. Core PCE stayed level at 2.6%. The U.S. Federal Reserve meets next week to decide on interest rates, though officials have signaled that they are likely to hold rates steady.
Across the Atlantic, the European Central Bank (ECB) kept interest rates steady as the Harmonized Index of Consumer Prices (HICP), the ECB’s preferred inflation gauge, recorded a slight slowdown in price growth. June HICP registered an annual price increase of 2.5%, down from 2.6% in May, while core HICP remained level at 2.9%. While a substantial decrease from the 10.6% annual inflation recorded in October 2022, policymakers held off cutting interest rates last week to ensure that inflation sustainably returns to their 2% target. Services inflation remains high as well, at 4.1% in the Eurozone in June. ECB President Christine Lagarde did not commit to cutting rates at the ECB’s next meeting on September 12, though many observers predict a rate cut.
Meanwhile, leaders of the Chinese Communist Party met in Beijing last week to set a roadmap for China’s economy over the next five years during the Third Plenum of the Chinese Communist Party’s Central Committee. The meeting comes as China’s GDP growth slumped in the second quarter of the year, growing 0.7% compared to the previous quarter and at an annual rate of 2.8%, well below China’s goal of 5% growth in 2024. In a surprise announcement on Monday, the People’s Bank of China (PBC) announced rate cuts to lending of 0.1% to bolster the economy. Given China’s reeling property sector and low consumer demand, the modest rate cut is unlikely to jolt the Chinese economy.
Chinese leaders double down on investments in manufacturing and innovation during Third Plenum meeting: Chinese leaders met in Beijing last week for the Third Plenum, a major meeting during which Chinese policymakers lay out an economic road map for the next five-year cycle. However, despite the meeting’s economic focus, the resulting output pays little heed to the major economic issues facing China such as a beleaguered property sector and tepid consumer demand. Instead, the more than 300-step plan released on Sunday emphasizes familiar themes, such as state led investment in technology and manufacturing. Accordingly, the glut of cheap Chinese goods flooding global markets and causing friction between China and many of its trading partners is likely to continue. In June, China posted a record $99 billion trade surplus.
High shipping prices threaten to prop up global inflation as attacks in the Red Sea continue: Last week marked nine months since the Yemen-based Houthis began attacking merchant shipping through the Red Sea, and tensions show few signs of abating. Israel exchanged fire with the Houthis for the first time earlier this week, while the Houthi’s attacked several merchant ships the week before and sunk a bulk carrier last month. The attacks have forced shipping companies to avoid the region, raising shipping times and costs: the price of shipping a 40-foot container has more than doubled since April. Policymakers and economists are especially focused on this issue now, as the heightened costs may boost inflation and complicate central banks’ ability to cut interest rates. In a statement earlier this week, ECB President Christine Lagarde noted that heightened geopolitical tensions “could push energy prices and freight costs higher in the near term,” keeping inflation high.
“Largest IT outage in history” disrupts business and travel, highlights vulnerabilities in global economy: Thousands of travelers were left stranded over the weekend as a defective software update from cybersecurity firm CrowdStrike caused computer systems worldwide to crash. The software bug, which may have caused the largest IT outage in history, affected over 8 million devices worldwide running on Microsoft’s Windows operating system and disrupted operations in critical industries such as aviation, healthcare, and financial services. While initial damage estimates exceed $1 billion, the economic fallout from the incident will likely have a muted impact on the global economy overall. The episode highlights how major swathes of the global economy rely on a handful of companies and IT systems, reinforcing concerns of supply chain vulnerabilities.
Brazil advances its leadership in the global south as it hosts G20 finance ministers: To ensure discussion remains on topic at the meeting of G20 finance ministers this week, member nations agreed they would avoid discussing “geopolitical issues” such as the conflicts in Ukraine and Gaza. Yet, from our perspective, geopolitics is a recurring theme of the meeting. Brazil has leveraged its leadership of the G20 this year to position itself as a leader of the global south, centering discussion on key issues for emerging economies such as climate change, development finance, and food security. The members of the G20 collectively account for more than 80 percent of global gross domestic product, three-quarters of world trade, and two-thirds of the world’s population. Should Brazil broker meaningful agreements in these areas, it may emerge as a leading voice of the global south and the non-aligned block in the growing U.S.-China competition.
Boosted by immigration, Canada appears to achieve a soft landing from inflation: The IMF released a new report on Canada last week, noting that the Canadian economy seems to have achieved a “soft landing”—policymakers have tamed inflation without triggering a recession. Indeed, as the Bank of Canada lowered interest rates for the second straight month on Wednesday, Canada’s fight against inflation has entered a new phase. Per the report, surging immigration “has cushioned” Canada’s GDP growth and will play a key for the country’s long-term growth due to demographic pressures and skill gaps. Canada’s population grew at its fastest pace in 66 years in 2023, driven by over 470,000 new permanent residents. Experts have hailed Canada’s immigration system as a model for other countries with aging populations and falling birth rates.
